WHAT'S HAPPENING IN THE US

18:00 Mon 22 July - Federal Budget (June): A surplus of around $30bn is anticipated. The Administration said last week that it now expected the full year (ending September) 1996 deficit to be $117bn, $29bn below the estimate it made in March.

13:30 Thurs 25 July - Durable Goods Orders (June): After last month's 3.4% gain, which included an usual number of aircraft orders, aggregate durable goods orders will do well not to record a fall.

15:00 Thurs 25 July-Existing Home Sales (June): A fall in sales to an annual rate of 4.04m, from 4.26m in May, is anticipated, reversing last month's big gain.

The Week Just Past

Industrial production rose solidly for the third consecutive month in June, up by 0.5%, the same as in May and only slightly below April's 0.7% advance. The rate of capacity utilisation edged up from 83.1 to 83.2.

Consumer prices went up 0.1% in June, up 2.8% on an annual basis. A sharp rise in food prices was offset by declines in the cost of energy. The core rate, ex food and energy, was up 0.1% last month, up 2.7% in the year to June.

Housing starts increased 1.3% in June to a seasonally adjusted annual rate of 1.48mn. The housing industry has proved resilient against a background of higher mortgage rates.

The trade deficit increased in May from $8.6bn to $10.9bn, boosted by record imports of petroleum.

Commentary

The Federal Reserve Chairman, Alan Greenspan, gave his much-anticipated bi-annual Humphrey-Hawkins testimony to the Senate on July 18th. Central bankers are renown for using a lot of words to say very little, thereby leaving their options, so far as future movements in interest rates are concerned, as open as possible. But even by these standards, this was a masterful performance.

Greenspan said that output growth had been stronger than expected in the first half of 1996, that it was expect to slow down in the second half, but that it might not.

He also said that inflation was staying remarkably low, and that he expected this to continue, but that rising wage pressures had to be watched carefully.

On interest rates he said: 'I am confident that the Federal Open Market Committee would move to tighten reserve market conditions (i.e. increase the Fed funds rate) should the weight of incoming evidence persuasively suggest an oncoming intensification of inflation pressures that would jeopardise the durability of the economic expansion.' Clear? No, well it probably wasn't meant to be.

It seems the Fed are not yet worried about the inflation risks in the US economy, but that they are very close to becoming worried. If the economy remains strong in the third quarter and there are any signs that underlying inflation pressures are increasing, expect interest rates to increase. This could still happen as soon as the next FOMC Meeting, which is scheduled for August 20th, though the odds on a tightening then look to have eased from around 2:1 on to less than evens.

Northamptonshire CC has been granted permission by the government to use £70m of capital receipts to help balance its books after commissioners warned the council will not be able to set a balanced budget this year.

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